Tag Archive | "monetary policy"

This article examines the effects of the European Central Bank’s (ECB’s) monetary policy on the economy in the Euro area. Existing studies have not conclusively determined whether the effects of the policy are large or small, effective or ineffective. Also, the difference between policy interest rate increases and decreases has not been fully studied. Using two types of VAR models, this article shows that, as expected, the ECB’s monetary policy designed to boost the economy is effective in inflation stabilization, depreciation of the euro, and production improvement. Also, the impact of policy interest rate increases on inflation rate is negative (i.e., effective). However, the results of other cases are not clear empirically. To maintain price stability is the ECB’s primary objective, so it can be concluded that the ECB in general has conducted monetary policy successfully.

In discussions about the efficacy of monetary policy instruments, attention is often focused on analyzing the money supply process. Monetarists, in general, argue that the monetary authorities can exercise effective control over the stock of money; others, especially those who share the new view of monetary theory argue that the determination of the stock of money is part of the economy. In this view, the stock of money is the outgrowth of the behavior of the public, the financial sector (banks), the finance ministry, and the rest of the world as well as of the actions of the central bank. The paper investigated the co-integrating property and stability of the supply of money function in Iran. The paper employed the ARDL approach together with CUSUM and CUSUMSQ tests. The results show that M1 and M2 is co- integrated with net claims on the government, net foreign assets, and rate of profit on bank deposit (interest rate and a major implication of using interest rate elasticity estimates from M2 function is that money is endogenous.

In this paper we try to check if and how the macroeconomic performances induced by a Taylor’s rule based kind of monetary policy are (or not) more efficient than those effectively induced by the most important central bank’s monetary policies. In this kind of respect, we use a simple three equations model: a Phillips equation, an aggregate demand equation and a fixing rule for the main interest rate. Based on historical simulation as well as on stochastic simulation, it turns out that macroeconomic performances, in terms of inflation and productivity gap, would be more stable and efficient if the Taylor’s rule would be used by a certain central bank in fixing its main interest rate.

There is widespread agreement that monetary policy matters,but there is disagreement about how it should be conducted. Behind this disagreement lie differences in theoretical understandings. The paper contrasts the New Classical, Neo-Keynesian, and Post-Keynesian frameworks, there by surfacing the differences. The New Classical model has policy only affecting long run inflation. The Neo-Keynesian has policy impacting inflation, unemployment, and real wages. The Post-Keynesian model also impacts growth, so policy implicitly picks a quadruple. Inflation targeting is a sub-optimal policy frame because it biases decisions toward low inflation by obscuring the fact that policy also affects unemployment, real wages, and growth.